February 28, 2016 – Saudi Arabia’s oil minister dismissed the possibility Tuesday that major oil-producing countries will cut production to stabilize slumping crude prices. An agreement between OPEC and non-OPEC countries to freeze production, however, still remains on the table.
Saudi oil minister Ali al-Naimi
“A freeze is the beginning of a process. If we can get all the major producers to agree not to add additional barrels then this high inventory we have now will probably decline in due time,” Minister Ali Al-Naimi said at the annual IHS CERAWeek energy conference in Houston, according to Reuters.
But a production cut is out of the question simply because countries “will not do it,” he said, “even if they say that they will.”
Alexander Novak Russian Energy Minister
The announcement was not unexpected: Last week, Saudi Arabia and Russia – the world’s top two oil producers – unveiled a preliminary agreement to freeze their output at January levels, which they made clear to distinguish from any kind of cut.
Nonetheless, benchmark crude prices swooned after Naimi’s remarks, falling by more than 4 percent. Prices for Brent crude have hovered in the $30 range since the beginning of the year, pulled down from a peak of more than $110 in June 2014 by a glut of oil and sluggish global economic growth.
In the latest sign of pain in the oil and gas sector, JPMorgan Chase – America’s largest bank – announced it added $500 million to its reserves to protect against loan losses related to energy companies. Bank of America, the nation’s second-largest bank, also has set aside $500 million to absorb similar losses.
Oil and gas companies recently have shed more than a quarter-million jobs worldwide, and at least 70,000 in the U.S.
Countries are pumping about 1 million excess barrels of oil per day – a surplus that’s not expected to be erased until at least early 2017, analysts say. That’s spurred Saudi Arabia and Russia to cut subsidies and consider other painful choices – including the potential production freeze – as they’ve wrestled to close budget holes opened by slumping crude prices.
The freeze, if achieved, would be the first output agreement in 15 years between OPEC and non-OPEC nations. It’s attracted support from countries like Venezuela, Qatar, the United Arab Emirates and Iraq, but has failed to bring aboard the most crucial player: Iran. The country, which is eager to restore its output and reclaim its spot among the world’s top oil producers with the lifting of international sanctions, has reportedly called the draft agreement “ridiculous” and “unrealistic.”
Mohammed binAl-Rumhy Hamad
Oman’s oil and gas minister, Mohammed binAl-Rumhy Hamad, has floated the possibility of granting Iran an exception as it brings its fields back online. Oman is not a member of OPEC but said it would reduce its output by 10 percent if an agreement is achieved.
“One solution is that Iran is given time to ramp up production,” he reportedly said. “This is up to OPEC and OPEC countries to decide.”